A Money Mail investigation has revealed how millions of struggling homeowners and savers have been abandoned by the very banks which have benefited most from an £80 billion scheme designed to kick-start lending.

In the past two months, they have regularly been beaten on savings and mortgages by smaller building societies and lesser-known names — many of which have not taken a penny from the Bank of England.

Barclays, Santander, RBS/NatWest,
Nationwide, and Lloyds Banking Group, which includes Halifax, have
barely featured in lists of the cheapest mortgage rates.

In particular, state-backed Lloyds —
which has already benefited from £17billion of taxpayers’ cash in a
bailout — took £1 billion funds but actually saw a drop in lending.

They have been trounced by the likes
of Melton Mowbray Building Society, Nottingham BS, Yorkshire BS, the
Co-op, Tesco Bank and Market Harborough BS.

At the same time, the High Street giants have deserted savers.

Rates on top accounts have plummeted
since September from 2.08 per cent after tax (2.6 per cent before), to
1.8 per cent (2.25 per cent).

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The only exception to this is HSBC,
and its sister brands First Direct and M&S, which have featured in
savings and borrowing tables — although the bank has not taken any
taxpayer cash.

Figures released yesterday showed that
Lloyds Banking Group— which includes Halifax — Santander and
RBS/NatWest all saw huge falls in their net lending in the three months
to October, despite being among those who received £4.4 billion in
funding.

When companies take this money, they
are supposed to dish it out to businesses and homebuyers. Mortgage rates
have fallen substantially since the Funding for Lending scheme began.
But analysis shows it is the smaller organisations leading the way.

Larger banks offer eye-catching deals
but have often bumped up the cost of their loans with huge fees. This
week, the best five-year fixed rate deal for borrowers with a 40 per
cent deposit is Co-operative Bank at just 2.79 per cent and a £999 fee.
Monthly repayments on a typical £150,000 loan are £695 with a total cost
of £42,699.

By contrast, the cheapest five-year fix offered by a big bank is £2,216 more expensive over the life of the loan.

That is with NatWest at 2.95 per cent,
with a £2,495 fee. Borrowers with a 25 per cent deposit wanting a
two-year fixed mortgage should go to tiny Market Harborough BS, which
offers a rate of 3.2 per cent. Monthly payments are £727 and a total
cost of £17,448.

Take a mortgage with a big bank and it will cost you £2,221 more

The cheapest loan from a big bank is
with Santander at 3.79 per cent — making monthly bills £774. The overall
cost is £1,128 more than the Market Harborough.

Loughborough BS has the lowest cost
five-year fix for borrowers with a 10 per cent deposit. The rate of
4.24 per cent has a £599 fee — so monthly payments are £812 and the
total cost £49,319.

If borrowers instead took the cheapest
mortgage offered by a bank which has benefited from the Funding for
Lending scheme, they would pay £2,221 more over the course of the loan.

This deal is with NatWest at 4.79 per
cent and is available only to first-time buyers. Although these rates
are a snapshot reflecting this particular week, this pattern has largely
been the same since the Bank of England’s scheme began in August.

Ian Gray, spokesman for broker Large Mortgage Loans, says: ‘Where is all the Funding for Lending money going to?

There doesn’t seem to be anyone
monitoring how it is being spent. The banks are simply giving more money
to the same people they would have lent to before.

‘And there is a huge geographical
split. People in the South-East who have equity in their homes will
benefit, while those living in the North, where house prices have
fallen, will not.’

David Hollingworth, of broker London And Country,
says: ‘A number of smaller players offer good value deals. They have to
compete with the biggest lenders and want to differentiate themselves.’

And savers are suffering too

A knock-on effect of Funding for Lending has caused savings deals to plunge over the past three months.

Traditionally, banks have had to pay for mortgages by taking cash from savers.

But because the money from the Bank of
England is cheaper than the rates banks would have to offer on savings
accounts they have been deserting savers.

It has created a race to the bottom —
with no organisation wanting to have the best deal because it means they
are paying more in interest than they need. As a result, some banks
have slashed the rates they offer by up to five times in the past three
months.

Lloyds TSB has cut its eSavings
account to 1.2 per cent after tax (1.5 per cent before) from 2 per cent
(2.5 per cent) in just three months and has slashed its Cash Isa Saver
rate down to 2 per cent tax-free from 2.35 per cent.

Meanwhile, RBS has shaved as much as 0.5 percentage points off the before-tax rate on its easy-access Direct

Saver account. Nationwide, the largest
building society, has also been busy cutting rates after grabbing
£510 million from the Funding for Lending scheme.

In June, it paid 3.1 per cent to new savers opening its online Isa with £1,000. Now the rate is down to 2.25 per cent.

Simon Rose, of campaign group Save our Savers, says: ‘The Government has not thought about the consequences of its actions.

‘Quite simply, if you give the banks money, they are going to cut their rates.

‘We are now left with the situation
where banks are scrabbling to drop rates to make sure they don’t feature
in the best-buy tables.’

A spokesman for the British Bankers’
Association says: ‘These first figures are a snapshot at the very early
stages of the scheme and therefore the full impact is not yet reflected
in the net figures.

‘As the scheme embeds in banks, we
should continue to see the scheme acting as a driver for competition,
benefiting all borrowers and therefore the wider economy.’